I previously reported a remarkable IP-backed financial deal in China, where Tralin Paper (Quanlin Paper in Chinese, though they use www.tralin.com for their website) used their IP portfolio to back a loan for 8 billion RMB, around US$1.3 billion. Now news from the office of Governor Terry McAuliffe of Virginia reveals what Tralin is doing with that money. See reports at TAPPI.org and MFRTech.com. Tralin Paper, renaming themselves as Tranlin Paper for some reason, has just signed a deal with the State of Virginia, obtaining state support as Tralin/Tranlin/Quanlin invests $2 billion to create a new environmentally friendly paper mill and create over 2,000 US jobs. In a departure from the stereotypical view of Chinese companies stealing American jobs and IP, here is an innovative Chinese company that has created and protected their own IP, used innovative financial tools (and plenty of solid Chinese guanxi) to obtain massive financing based on that IP, and then brought their money and their technology to the US to create many jobs. At least some parts of this story are going to be repeated in many ways in days to come. The old paradigm of China lacking IP or lacking valuable IP is fading.

Watch for China to surprise many pundits who decry its lack of IP and innovation. Many Western companies are going to be startled at the tsunami of innovation and IP that will come from the Middle Kingdom, which is rushing to become the epicenter of global innovation and IP value creation. China still has a long ways to go in overcoming its problems and strengthening innovation and IP, but the trends here are remarkable and should not be discounted. Meanwhile, we should welcome stories like Tranlin’s, and watch for many more to come. But for some US companies, this will mean even tougher competition that won’t be easily avoided with restrictive, protective tariffs or antidumping legislation.

Notice & update: IAM Magazine, one of my favorite sources for information on intellectual property, just issued a blog post on the use of IP in lending in China: “Chinese companies have secured over $10 billion in patent-backed loans since 2008” by Jeff Wild, March 4, 2014. The news I share below (cross-posted at InnovationFatigue.com) definitely supports their article. Great timing! Further, responding to the news that I first broke to English speakers on the Innovation Fatigue Blog, IAM Magazine has written a blog post about this story (kindly citing my announcement), wherein they observe just how big of a deal this is. I agree, though I also think it’s fair to wonder how much of the transaction actually depended on IP and how much was due to guanxi and other factors. I have not yet evaluated the IP and if I do look at it in more detail, do not plan on sharing my analysis publicly, but may still offer further updates on this story here. IAM’s post includes a translation of the Chinese article behind this story. My independent translation (prepared before I saw the IAM translation) is at the end of this post. If there are significant differences in meaning, I’ll defer to them since my Chinese is still rough.

March 6, 2014: I just learned of breaking news from the Province of Shandong in northern China. A Chinese paper company, Quanlin Paper (also called “Tralin Paper”) has successfully used its portfolio of patents and trademarks to secure a huge loan of 7.9 billion RMB (about $1.3 billion). Potentially significant story for those tracking IP and innovation in China. The story was just reported on March 3, 2014 at China Paper (the story is in Mandarin). This is quite a big deal and may be a record for China in terms of how much value IP brought in seeking a corporate loan. To emphasize the significance of this development, the normally dry China Paper publication begins with a somewhat flowery statement based on an interview with the Chairman, who expresses surprise and delight at how much money they were able to obtain with their IP. Here’s my loose translation, followed by the actual Chinese:

“I never thought that intellectual property could have such a big effect in obtaining this loan. IP was a big part of it,” according to Quanlin Paper Company’s Chairman of the Board, President Li Hongfa, speaking today to a reporter about the 7.9 billion yuan from bank lenders that began this week. He said that this money will help them rapidly expand and seize market opportunities. Money has been tight for business, and this new addition is welcomed just as the mist-covered earth rejoices in the spring rains from the night before.

OK, a bit flowery, but again, this is big news for China and things get flowery when the big news is good. This development shows that IP in China can be valuable (though the portfolio includes some international patents, it is mostly Chinese IP). It also shows that Chinese companies, even in seemingly dull industries like the paper industry, can be innovative and create valuable IP. I haven’t reviewed their IP to assess its value, but I understand they have over 100 Chinese patents in areas such as technology for using straw and other renewable or recycled materials for making paper, with alleged benefits of enhanced environmental friendliness and cost effectiveness. Shandong Province’s IP Office has also created some publicity about Quanlin’s IP estate (see the Chinese article here), though this was before the news of the massive loan secured with the help of IP. Expect more publicity from them shortly.

When nations develop strong IP systems, companies can use their IP to protect their innovations. This also motivates them to take the risk and spend the money need to drive further innovation, and gives investors courage to fund growth and innovation. In this case, it helped give a lending partner (a Chinese financial organization) the courage to loan a giant sum of money to help Tralin grow. Tralin has been pursuing IP not just for tax breaks it seems but also for strategic purposes, and information coming out about this story shows that they have been developing expertise in their staff to develop their IP estate. Sure looks like that has paid off for them.

This is one of many signs that China is becoming serious about IP and innovation, and not just low quality IP, but IP that can provide significant value. For IP to apparently be a crucial part of such a large loan in this challenging economic times is a remarkably positive sign for China, in my opinion.

On the other hand, the loan may be due to politics and guanxi with officials, and the IP is just window dressing. That’s possible. But to even choose IP as the window dressing for publicity and hype is a remarkable thing in it’s own right, and still a sign of China’s rapid transformation in valuing and pursuing intellectual property.

On Feb. 21, 2014, Quanlin Paper secured a loan using a pledge of intellectual property. The pledge, recorded with the State Intellectual Property Office (SIPO), includes 110 patents and 34 registered trademarks. The Shandong Province Intellectual Property Office has verified that this is the largest amount ever financed in China using intellectual property.

“With this funding obtained, we will be able to accelerate our large projects. Market opportunities wait for nobody!” said Chairman Li Hongfa. The primary project Li refers to is a straw-based pulp manufacturing complex for papermaking that will process 1.5 million tons per year of straw. Quanlin company is headquartered in Liaocheng City, Gaotang County (Shandong Province). Quanlin’s core business among their large-scale enterprises is pulp and paper manufacturing using straw to create “natural color” paper. Quanlin turns waste into treasure and promotes a healthy environment, transforming both the impression that people have (of the industry) and their habits of consumption.

After the enterprise brought this large project forward, it rapidly gained approval from the Environmental Bureau and the National Development and Reform Commission. The project is an important program for the nationwide comprehensive utilization of resources and a model project for China’s recycling economy. It was also considered a provincial key construction project in 2013. Currently, capital construction is fully underway and should be complete by year-end. Once production begins, the expected annual sales revenue will be 8.165 billion RMB, with anticipated sales taxes of 489 million RMB and annual profit of 1.24 billion RMB.

For intellectual property to receive this high level of approval from the market is without doubt a giant benefit for technological enterprises in general. Although Quanlin company’s own development has now benefited from their intellectual property, they continue to invest steadily in their core technology—continuing even during the times when investment is most difficult. This is an area where the company has never gone “short.” The result has made a deep impression on Li Hongfa: in the process of obtaining these loans, the appraised value of Quanlin’s patents reached 6 billion RMB and played a key role in successfully obtaining the financing. This means that patents and other IP rights are not just about obtaining a monopoly in the market, but can be used to creating long-term profit for the enterprise. They can be used as collateral for significant financing to resolve one the biggest headaches for high-tech businesses, the hunger for funds to grow, to capture hidden potential, grasp favorable market opportunities, and to let the company “grow up.”

This financing will stir the interest of banks other technology enterprises. Not only did the China Development Bank and their affiliates issue Quanlin a loan of 7.9 billion RMB, but the Bank of Communications also signed a strategic cooperation document with the Provincial Science and Technology Department, and launched a specialized intellectual property financing product. Jiang Lurong, General Manager of the Retail Credit Department of Shandong Branch Bank, said that while intellectual property seems invisible, it reflects value creation and the ability to continue operations without increasing banking risk, and can help obtain more high-quality customers, improve the system for customers of the bank such as companies like Quanlin.

Kudos, by the way, to Dr. Ian Feng of Goldeast Paper in Zhenjiang, China for alerting me to the story in China Paper.

After 3 years of planning and navigating complex political waters, a historic event finally took place in Beijing last week at China’s top university for IP law, Renmin University. Top justices, judges, lawyers, business leaders and academicians from the US and China gathered for 3 intensive days of sharing regarding intellectual property and the courts. There were over 1,000 people that attended, including numerous judges and IP thought leaders from China and the US. The number of judges from China was said to be 300, though most of the Chinese people I met were not judges but lawyers, business leaders, and students, though I did have lunch with a Chinese judge and met several in other settings during the conference.

The leaders and speakers of the conference included US Court of Appeals for the Federal Circuit (CAFC) Chief Justice Randall Rader, one of the most brilliant and influential minds in US patent law whose decisions have long been shaping US law and practice. He is a strong advocate of international collaboration and appears to have been one of the primary driving forces between this event. I was pleased to see a total of 7 Federal Circuit judges present, most visiting China for their fist time, including these 6 Circuit Judges: Raymond C. Clevenger III, Richard Linn, Timothy B. Dyk, Sharon Prost, Kimberly A. Moore, and Jimmie V. Reyna. Also playing prominent roles were Gary Locke, US Ambassador to China; David Kappos, Director of the US Patent and Trademark Office; Mark Cohen, the USPTO’s former Attaché to the US Embassy in Beijing; Steven C. Lambert, President, Federal Circuit Bar Association; and many others. Mark Cohen wowed the crowd by delivering his speech in fluent Mandarin, though his rather erudite citations of Chinese poetry and classics sometimes challenged the gifted translators who made this bilingual conference accessible to everyone present.

On the Chinese side, we were elated to have active participation by Chief Judge Kong Xiangjun, IPR Tribunal of the Supreme People’s Court. Also from the IPR Tribunal of the Supreme People’s Court were Deputy Chief Judge Jin Kesheng, Supervisory Attaché Zhang Shengzu, Presiding Judge Yu Xiaobai, Presiding Judge Wang Yongchang, Presiding Judge Xia Junli, and Judge Zhu Li. These judges, with the 7 from the US Federal Circuit, were part of an “en banc” panel discussing US and China law and IP adjudication. Fascinating! Also representing China was Chong Quan, Deputy Deputy China International Trade Representative and a leader of MOFCOM (China Ministry of Commerce).

In addition to many keynote speeches and panel discussions, there were also breakout sessions on such topics such as trademark law, patent litigation, pharmaceutical patent adjudication, and copyright law. Definitely one of the most interesting and information-packed IP conferences I’ve ever attended.

For many, the highlight may have been the afternoon of mock trials in which the same case was presented in an appeal to the US Federal Circuit and to the IPR Tribunal of the People’s Supreme Court of China. Judge Rader lead the 3-judge panel for the US mock trial. The mock trials allowed representatives of both nations to quickly grasp important differences in procedure, though both courts came to essentially the same conclusion in a genuinely interesting real case involving an advance in safety equipment for a circular saw. Following the trials, there was further exchange between the judges of both countries as they discussed their different systems and what they had learned from one another. What a tremendous learning experience and example of meaningful international cooperation.

The rapidity of China’s progress in IP law and adjudication has been breathtaking, in spite of the many complaints made by voices in the West, and the obvious need for further improvements. But from a historical perspective, to go from virtually no IP law in the early 1980s to a world-class system that is leading the world in patent filing now, with the ability of foreign plaintiffs to win against Chinese companies in Chinese courts, represents massive progress worthy of respect. Exchanges like this recent one in Beijing will influence the thought leaders of both nations to further learn from each other and strengthen our approaches to IP law. Many thanks to all those who made this monumental event possible.

In the closing session, I was able to ask a question to the panelists about what future impact they anticipated might come from this exchange. Chief Judge Kong kindly fielded that question and spoke eloquently of the growth of IP law in China and the rich opportunity they had to draw from the US experience and strengthen their system. There is no doubt in my mind that China is rapidly learning and growing and a visionary eye toward the future. I hope the US can keep up and remain a worthy partner and competitor!

Liu Yang, Exec. VP of the China Law Society, introduces speakers in the first session. Also visible are Mark Cohen (USPTO), Chong Quan (MOFCOM), David Kappos (USPTO), and Shen De Yong (VP of the Supreme People's Court).

Chief Judge Randall Rader is one of the rock stars of IP--literally. I asked him if he was going to perform for us in the evening but sadly, he informed me that he had left his band behind in the US for this event. I took the opportunity to compliment Judge Rader on setting a great example by being visibly active in areas other than his profession alone. His pursuit of rock music with a real band, even while in the judiciary, is one of many attributes that makes Judge Rader one of the more interesting and likable people in IP law. His passion for China is also part of the Rader equation. Many thanks for making this historic event happen!

Jeff Lindsay in front of the Ming De complex at Renmin University where the Adjudication Conference was held.

David Kappos, head of the US Patent and Trademark Office, speaks. His support for this event was crucial and much appreciated.

People pursuing a new business concept on their own should quickly consider forming an LLC (Limited Liability Corporation) to prepare for that business and limit their liability. And even before that, it’s important to protect your proprietary information using Non-Disclosure Agreements (NDAs), also called Confidentiality Agreements (CDAs). These are agreements in which the other party agrees to keep confidential information secret for a period of time (typically 2 to 5 years) under certain stipulations. It is vital to use these as you talk with others about your business plans or invention, or you may find someone else marketing it.

A lof of people ask me if I’m a patent lawyer. No, I’m a patent agent, and there is a significant difference, but some areas of overlap.

Both patent lawyers and patent agents can prepare and prosecute patents before the United States Patent and Trademark Office (PTO). Both have become licensed to do so by passing the PTO’s own bar exam. The area of patent law is so different from other aspects of law, with its own unique codes and procedures, that it has its own bar exam supervised by the Federal Government. People with a technical degree or technical experience can take the bar exam and become patent agents or, if they already have a law degree, they can become patent lawyers (patent attorneys).

A patent agent can only practice patent law before the PTO. When it comes to other aspects of the law, such as preparing an assignment of a patent, suing someone for infringing, or dealing with patent law before a court, patent agents are powerless. These matters require a qualified attorney.

Patent agents are often hired to assist attorneys or corporations in drafting patents or in supporting patent work. In my case, I was already employed in research and engineering, pursuing patents and patent strategy, when I saw a need to expand my skills. I began studying for the US PTO’s patent bar exam that I took and passed in 1996, with the help of an excellent patent bar exam course offered by Patent Resources Group. I completed additional requirements and became registered as an official US patent agent in 2007, the first employee of my company to become a patent agent, as far as I know. Doing so has opened many doors to me and has helped me be more effective in my research work and in my work to guide and develop patent strategy.

If you have a technical background and an interest in patents, I would encourage you to consider becoming a patent agent. And if you’re interested in a law degree, take the extra time to also become a patent attorney. There is great demand for skills in patent law, and it’s an exciting area to pursue.

About Jeff Lindsay

Jeff Lindsay lives in Shanghai but has roots in Utah and Wisconsin. His interests include China and Chinese (the language and the food), intellectual property, chemical engineering, magic (a hobby), reading, writing, travel, photography, and his LDS faith.

This website has been around since 1994 and has a troubling mix of topics and styles. Therapy hasn't helped, but maybe you can. Chime in and let me know what you think.